I Interned in Asset Management - Here’s What I Learned

[TheCanaryConsultant1]

This article is based on my personal experience as an intern working for a well-known Swiss bank in London. I feel I must begin by pointing out that this piece will probably be slightly biased, since I particularly enjoyed my time there.

First of all, working hours are good. You are likely to start quite early, from around 7AM, but also get to finish relatively early (usually no later than 7PM) given your job is dictated by the market’s opening times. Compared with other banking jobs, I think it is fair to say these times are sensible. Of course, all of this will depend on the kind of market you work on, as well as the team you are working for.

I worked in the Fixed Income department, which is where I discovered the various teams needed for such a department to be successful. Portfolio Managers (PMs) are responsible for implementing investment strategies to manage portfolios on behalf of clients and are divided into different teams (FX, investment grade, high yield, ETFs, etc.). The Quant team works on developing models that either computers can run to return an optimised position, or manual models that a PM uses to make an informed decision on positions he could take. The investor relation team is the equivalent of the sales team, and the data management team works to help PMs get the most up to date data. There may also be more niche teams trying to find alternative investment solutions. I am sure there are many more which I have not mentioned here, but these are the ones I worked with the most.

Like with many banking jobs, you get to work on the trading floor and are close to everyone. This is a great set up – even more so as an intern – as you get to easily walk over to discuss matters with another team or ask them questions. This allows you to understand how everyone works, so you can better understand which area is the best fit for you. Many students will aim to work as a portfolio manager, but I will give a quick description of some teams I interacted with:

· High Yield: portfolio managers focused on bonds issued by corporations. These bonds will have a rating (generally from one of the big 3 ratings agencies, S&P, Moody’s and Fitch) which is below or equal to BB+ or Ba1. These corporations are generally small, or large but with less stable or predictable earnings. Indeed, this implies a bigger risk of default. Portfolio managers will study each corporation which issues a bond they would potentially invest in and look into their financial statements. They will also contact the companies, or make sure to be on investor calls, to understand the company’s business model and its forecast to take a view on whether or not they believe the company will be able to pay the coupons and repay the bond at maturity.
· Investment grade: similar to high yield, this team will focus on corporations considered as less risky, i.e. with a rating above BB+ or Ba1.
· ETF: this team manages portfolios similar - in principle - to funds. These portfolios are made of pools of securities which track certain indexes. These PMs need to exactly replicate the indexes’ performance. This implies a regular tracking of the index and the portfolios securities to rebalance the pool of securities which constitutes the portfolio.
· FX: portfolio managers that invest in baskets of currencies. You would need a good knowledge of global economics, as currencies will fluctuate regularly based on central banks’ policy decisions, events that happen in different countries, etc.
· Quant: This team has a slightly different role and will focus on building models that will create buy/sell signals for portfolio managers. For example, a very simplified model could track a specific security’s price, looking at the rolling average over a few days, months. When this rolling average changes for a certain period of time, this will create a buy or sell signal.

Even as an intern, I was given responsibilities and had to present investment ideas to portfolio managers (and sometimes even managing directors, or the Head of Fixed Income). I believe the asset management industry is more open than the other industries I worked with in finance (M&A or credit for example).

Whilst at this bank, I also discovered that having the CFA was quite important in asset management. For many asset managers, it is even a pre-requisite. It seems however that it is losing its “sparkle” as fewer managers appear to ask for it. The decision to take the CFA will depend on what you are looking for, but I believe it does not hurt to have an additional qualification on your CV (it does take a lot of time and effort over a few years, but I really believe it still helps to get a job).

Another interesting thing I experienced was the regular morning market briefing we had. Very frequently, all the PMs would give their views on the current market and for their specific sector. Everyone would gather around to listen to the briefing and ask questions or give their opinion (mainly the managing directors).

In summary, being an intern in asset management was a great experience, and allowed me to better understand what I was interested in. Asset management is very attractive for quite a few people: the pay is good (not as much as other banking jobs like sales/trading or M&A) and the work / life balance is great. On the downside, you need to reach your performance goals every year for your time to be worth the asset manager’s while. Because asset management is such an attractive industry, it also means it is quite difficult to find a job because many people apply, and those who get the job will tend to stay for quite a while.

 

[magellan1]

This is one of the best articles on the blog, thanks for sharing. I also worked as an intern at an asset management company a few years ago. The company I interned at was relatively small and run by an ex-MD from a top-tier bank (research department). My experience was slightly different than yours.
Firstly, everyone in the company knew each other and I saw almost all my colleagues every day. The small company size created a sense of a close community and fostered communication.
Secondly, the separation between "departments" was less obvious. I heard the conversation of all my colleagues, knew what each of them was working on and learned a lot of things in a short period (Equities, FX, Bonds, ETFs).
Thirdly, I had the chance to experience all parts of the business. For instance, one day the PM asked me to do stock screening in a particular industry, the following day the person responsible for IR needed help with the preparation of client reports, then I had to go to a client and give/take some documents and almost every day I had to do different activities, which I really enjoyed.
Overall, I would say that working for a small asset management firm is different than working for a large asset manager.

 

[LondonFinance1]

Well written - thank you for that. If you are looking at a CFA, I have compiled some thoughts here https://www.canarywharfian.co.uk/threads/mba-vs-cfa.717/ a little while ago

 

[JustAnotherHuman1]

Thanks for the piece, how does sales and trading differ vs asset management and equity research, where do they intersect?

 

[TheCanaryConsultant1]

Thanks for the piece, how does sales and trading differ vs asset management and equity research, where do they intersect?

Thank you, very good question. Traders would look to trade individual securities more than a portfolio of securities like asset managers. Traders also work on shorter terms, where asset managers are looking to build portfolios of securities, and hold for a longer period. But it is true this role is quite similar. The main difference is that asset managers look to build a strategy, for a longer term.
Equity research on the other hand is a totally separate team. Equity research analysts will be in contact with the company they are following, and look to build a full research paper that will be used by the trader, or the asset manager. These papers are very useful as they contain a lot of information on the company, how they operate, how they compare to other companies as well as actual financials and forecasts. They will also give some "buy", "hold" or "sell" advice based on their research, which can then be used by the trader or asset manager.

 

[TheCanaryConsultant1]

This is one of the best articles on the blog, thanks for sharing. I also worked as an intern at an asset management company a few years ago. The company I interned at was relatively small and run by an ex-MD from a top-tier bank (research department). My experience was slightly different than yours.
Firstly, everyone in the company knew each other and I saw almost all my colleagues every day. The small company size created a sense of a close community and fostered communication.
Secondly, the separation between "departments" was less obvious. I heard the conversation of all my colleagues, knew what each of them was working on and learned a lot of things in a short period (Equities, FX, Bonds, ETFs).
Thirdly, I had the chance to experience all parts of the business. For instance, one day the PM asked me to do stock screening in a particular industry, the following day the person responsible for IR needed help with the preparation of client reports, then I had to go to a client and give/take some documents and almost every day I had to do different activities, which I really enjoyed.
Overall, I would say that working for a small asset management firm is different than working for a large asset manager.

Thank you, interesting comment. I believe you are right, a smaller firm would be different because from what you are saying, it seems you would not have the same separate divisions (equity, fixed income, etc.) whereas bigger asset managers would be a lot more segregated, and have more admin tasks to do. This is great to be an intern in the kind of set up you describe as you have a lot more exposure to different tasks than a regular asset manager. However, I believe that the accessibility of people in general was great where I worked so it probably is something asset managers have in common - people are very accessible and are willing to share quite easily.

 

[curious_finance1]

Very interesting and practical article, thank you @TheCanaryConsultant
I myself work with asset management companies, offering other solutions and services, but haven't worked personally in such a company or working environment.
The work of the Investment team seemed one of the most active or busiest ones, however the work of the Origination team was to me the best in terms of interesting tasks or everyday work, as one gets to study and learn more about different businesses across the whole world.
What do you think is the 'best team' to look for ? Which leads to a more successful career in terms of rank advancement? and what about financial remuneration, where can one look to earn more? Thanks again.

 

[TheCanaryConsultant1]

Very interesting and practical article, thank you @TheCanaryConsultant
I myself work with asset management companies, offering other solutions and services, but haven't worked personally in such a company or working environment.
The work of the Investment team seemed one of the most active or busiest ones, however the work of the Origination team was to me the best in terms of interesting tasks or everyday work, as one gets to study and learn more about different businesses across the whole world.
What do you think is the 'best team' to look for ? Which leads to a more successful career in terms of rank advancement? and what about financial remuneration, where can one look to earn more? Thanks again.

Thank you for your comment. I did not work much with the origination team which, where I was, was the investor relation (IR) team.

In terms of “best to look for”, It depends on what you are looking for in terms of day-to-day work. I know that the IR team was constantly in meetings, working to get new mandates. To me, this is more like a sales role where you do not necessarily need to have a full understanding of the investment strategies. For example, most of them did not have the CFA whilst all the PMs were required to have it. Portfolio Managers on the other end focus on the investment side of things. They will also eventually originate a few deals as well thanks to the connections they build along the way (which is where managing directors add additional value as well).

The most interesting to me was the high yield team (they also were the most successful alongside the ETF team). Indeed, the HY team get to study the companies they invest in in detail, they get to understand how the industry works, and these are less “vanilla deals”. However, if you are interested in macroeconomics, the FX team could be a good fit. The ETF would probably more be about constant rebalancing of your portfolio to match the index and less about the underlying securities.

 

[sw20001]

Great article, thank you for providing us with such detailed insight!

As someone who has also enjoyed her summer internships in asset management, I am keen to understand what opportunities lie ahead for me specifically in the ESG space when it comes to this industry.

Obviously there is an increasing awareness around the topic and while all AMs seem to be talking about how they build it into their research processes, it's often unclear what this means in practical terms, i.e. are relying on particular metrics such as carbon emissions, or is it more a qualitative evalution etc.. During your internship, did you evaluate any assets from and ESG perspective, and if so, would you please be able to share with us how you executed this?

 

[TheCanaryConsultant1]

Great article, thank you for providing us with such detailed insight!

As someone who has also enjoyed her summer internships in asset management, I am keen to understand what opportunities lie ahead for me specifically in the ESG space when it comes to this industry.

Obviously there is an increasing awareness around the topic and while all AMs seem to be talking about how they build it into their research processes, it's often unclear what this means in practical terms, i.e. are relying on particular metrics such as carbon emissions, or is it more a qualitative evalution etc.. During your internship, did you evaluate any assets from and ESG perspective, and if so, would you please be able to share with us how you executed this?

Thank you for your comment. Unfortunately I did not have the chance to work on ESG assets during my time there so it would be difficult for me to comment. I can however say that it definitely is a recurring theme and that AMs are focusing a lot on that. Caution must be applied as I also see a few articles about misleading ESG statements from these AMs.

 

[HowardM1]

Thanks for the piece, how does sales and trading differ vs asset management and equity research, where do they intersect?

Good question, as the terms are often used interchangeably for different things, which can be quite confusing!

Sales and Trading is typically used in the context of the sell-side, where traders execute client flow and make markets. Salespeople are the interface between trading and the client, such as the asset manager. There are also sales traders, but let's not get ahead of ourselves.

A salesperson will build a relationship with a client (if they are important enough) and should, in theory, help with getting the best price from the trader. However, there is a clear conflict since they both work for the same firm. A trading role at a bank will be pretty fast-paced, with short trade horizons, and mostly dealing with customer order flow and managing or helping to manage the risk that arises. As mentioned, salespeople act as intermediaries. In the past, the best traders could take on a lot of risk and were not unlike hedge fund managers. They also had the advantage of seeing a lot of client flow. As risk appetites and the cost of capital diverged, many of the top traders joined hedge funds. Some did well, while others realized they didn't have an edge without that client flow. But sin scéal eile as we say.

Traders at an asset manager are typically what others would call dealers. They execute the portfolio manager's trades, so it goes Buy side > Sell Side: PM > Dealer (buy side) >> Sales > Trader (sell side). A buy-side trader's role is more about best execution, i.e., getting the best price, which often involves finding the best liquidity. It's not a risk-taking role as such since they don't typically run a book. They might have some leeway on execution, but it's mostly execution only.

Hedge fund PMs might also be referred to as traders because they tend to take more short-term positions, but that's a topic for another day.

I will be posting regularly on these and other topics so feel free to follow my profile or keep an eye out. Equally I'm happy to engage here or on dm's.

 

[JustAnotherHuman1]

Good question, as the terms are often used interchangeably for different things, which can be quite confusing!

Sales and Trading is typically used in the context of the sell-side, where traders execute client flow and make markets. Salespeople are the interface between trading and the client, such as the asset manager. There are also sales traders, but let's not get ahead of ourselves.

A salesperson will build a relationship with a client (if they are important enough) and should, in theory, help with getting the best price from the trader. However, there is a clear conflict since they both work for the same firm. A trading role at a bank will be pretty fast-paced, with short trade horizons, and mostly dealing with customer order flow and managing or helping to manage the risk that arises. As mentioned, salespeople act as intermediaries. In the past, the best traders could take on a lot of risk and were not unlike hedge fund managers. They also had the advantage of seeing a lot of client flow. As risk appetites and the cost of capital diverged, many of the top traders joined hedge funds. Some did well, while others realized they didn't have an edge without that client flow. But sin scéal eile as we say.

Traders at an asset manager are typically what others would call dealers. They execute the portfolio manager's trades, so it goes Buy side > Sell Side: PM > Dealer (buy side) >> Sales > Trader (sell side). A buy-side trader's role is more about best execution, i.e., getting the best price, which often involves finding the best liquidity. It's not a risk-taking role as such since they don't typically run a book. They might have some leeway on execution, but it's mostly execution only.

Hedge fund PMs might also be referred to as traders because they tend to take more short-term positions, but that's a topic for another day.

I will be posting regularly on these and other topics so feel free to follow my profile or keep an eye out. Equally I'm happy to engage here or on dm's.

Thanks for the detailed answer. What are the skills involved in being an AM dealer, is it just a case of asking around for prices and going with the best one? Perhaps some relationship management/building skills so to get better prices?

 

[HowardM1]

Thanks for the detailed answer. What are the skills involved in being an AM dealer, is it just a case of asking around for prices and going with the best one? Perhaps some relationship management/building skills so to get better prices?

Well it depends on the market your dealing with, you need to know your market inside out otherwise the guy on the other side will take advantage of you. So if its cash equities maybe its easier to understand than if its interest rates derivatives!

In terms of skills adaptability, flexibility, lateral problem solving, good mental arithmetic skills, ability to work well under sometimes extreme pressure. You never know what each day will bring, you don't control your order flow so its not a job for people that like routine. You definitely need good relationship skills there are different approaches but you will tend to go further if you try and work with people and build relationships than if you try and rip their face off. Sounds obvious but it seems to have been lost on many I have met.